Lenders may require a Verification of Rent (VOR) to better assess a borrower's likelihood of making on-time mortgage payments. While VORs aren't always necessary, it's important to understand what they are and how they can impact your mortgage process.
Most VA buyers won’t encounter a VOR as part of their homebuying experience. But it can be a critical piece of the puzzle for those with more challenging loan files.
Verification of Rent is pretty much what it sounds like: a mortgage lender wanting to verify your housing payments for the previous 12 or 24 months. Lenders can have different guidelines and triggers for when a VOR is needed. They may also take varying approaches to how borrowers can satisfy the request.
Generally, VORs will come into play with loan files that must be underwritten manually. A manual underwrite occurs when a loan application can’t receive initial approval from a lender’s Automated Underwriting System (AUS).
Common issues leading to a manual underwrite include defaults or delinquencies on federal debt, a history of late mortgage payments, or issues surrounding bankruptcies or foreclosures in the previous two years.
At Veterans United, we’ll often require a VOR on manual underwrites when the buyer isn’t currently a homeowner
Verification of Rent helps lenders assess a borrower’s ability to make their monthly mortgage payments. Veterans who haven’t been paying rent can face significant payment shock when they suddenly have to make regular mortgage payments.
Guidelines for verifying your housing payments can vary among lenders. At Veterans United, we typically require a VOR for the prior 24 months directly from the landlord, from the payment history shown on a credit report, or verified through canceled rent checks.
Things can get trickier when borrowers pay their rent in cash or don’t pay rent at all.
Prospective buyers who pay rent in cash may need to provide a 24-month banking history showing those withdrawals. Paying the rent with a mix of cash and checks can require documenting both the withdrawals and the canceled checks.
There may be instances where a Veteran was living with friends or family and making contributions to the overall cost of the home, but not in any fixed manner. In cases like these, VA lenders may ask to see canceled checks, or bank statements showing regular withdrawals or transfers of money.
Not having a formal lease in hand could make the verification process complicated, but working with an experienced loan expert may make it easier.
Veterans who live with a family member or friend rent-free may need to provide a written letter of explanation to that effect. But lenders will be especially concerned about payment shock in a rent-free scenario. If you haven’t been paying rent for the last two years, lenders will take a closer look at your savings and assets. They want to know what you’ve been doing with the money you didn’t have to spend on rent.
If you’ve saved a nice amount or used that money to pay down debt, these can be positives for your loan file. Borrowers who’ve been living rent-free but don’t have a lot of assets may have trouble. Providing a budgeting letter and a letter of explanation about your housing situation may help ease lender concerns.
Your lender typically provides Verification of Rent forms. You’ll be asked to provide all of your landlord’s basic information like name, address and phone number. Your landlord will need to verify when you began living at their property, your payment history, any delinquencies or other issues they had with you as a tenant. Your VA lender will have the option to ask your landlord any more questions about your tenancy to gain clarity about your rental payments.
It’s less common for underwriters to request a Verification of Rent on a loan file with initial approval from a lender’s Automated Underwriting System. Guidelines and policies can vary by lender.
Some lenders may want a VOR for buyers who continue to live in their home after a Chapter 7 bankruptcy. Others may request them for borrowers with thin credit histories.
Generally, borrowers may be able to negate the need for a VOR by producing alternative credit tradelines. Talk with a Veterans United VA Loan Expert in more detail.